Defining the chosen market, and estimating its size, are keys in the development of strategic questions about levels of investments in business and profitable growth targets. A
comprehensive blog by Priority Metrics Group ( https://blog.marketresearch.com/5-steps-to-estimate-market-size )for Market Research.com summarizes five significant
steps in estimating market size.
For most businesses, the concept of market sizing is readily understood but not easily accomplished, says the report. Market sizing serves as a quick
understanding of the potential for a B2B market opportunity in terms of volume or value, and is pertinent to business strategy and decision making
1. Defining the Market
Knowing the level of detail necessary to approach your strategic questions is the key to properly scoping your market sizing approach. Defining your target market should always be the first step in
estimating market size, and it is critical that you do not stray from your determined market definition through the data collection process.
According to the report, market size can be viewed
in terms of Total Available Market (TAM), Served Available Market (SAM), and Share of Market (SOM). Total Available Market refers to the combined revenue or unit volume in a specified market. SAM
typically will be less than TAM, and Share of Market or SOM refers to the percentage of SAM that a particular company currently serves or plans to serve.
The Served Available Market refers to
the percentage or size of TAM that a company can reasonably serve based on product, technology and geographic constraints. SOM should be less than SAM except in the case of a monopoly.
In your
market sizing process, start by determining what products or services should be included as part of your TAM, then narrow down by geographic scope: US, North America, Europe, etc. By defining what
should be included in your market sizing estimation, your company can more accurately determine the market potential and the estimated available share of the market.
2. Determining Your
Approach
There are two basic methodologies for determining market size: top-down and bottom-up, says the report. Your selected approach may be based on what market information is
available. However, the best approach is to develop market sizing estimations using both methodologies in order to gain a higher confidence in your estimation. In general, a top-down approach is
typically a quicker, more time efficient approach, says the report. It is great for validation or a quick assessment of market size but seldom will provide the detail necessary for a true opportunity
analysis.
The bottom-up methodology builds the TAM by totaling the main variables of the target market. This method is generally considered to be more accurate and takes considerably more time
to complete. As a result, the bottom-up method is a more valid estimate because it is less likely to include non-addressable revenue or units.
3. Selecting Sources
Your selected
approach will dictate the necessary sources to estimate market size. Secondary research for existing data is the most commonly used form of research in this type of exercise as it is quicker to obtain
and therefore usually more cost effective. Through general web searching, a wealth of information can be found at little or no cost. Articles about companies or products in the target market will
often quote data from these sources, as will whitepapers and product announcements for similar information. Publicly held companies are required to share information in analyst and investor reports.
Quarterly and annual reports are typically available on these company websites as well as through the SEC filings. And, trade associations will often conduct market research and aggregate industry
data.
Primary research is often used in addition to secondary research. The most versatile form of primary research is in-depth telephone interviews that can be used to capture more sensitive
information. If possible, on-site visits can be used to confirm or contradict market sizing estimations or determine key information on market trends, such as technology, market performance, relative
competitive position or other information dealing with understanding scope and defining the target market.
4. Data Structuring—Typology
To further develop your
understanding of the market, it is important to gather trend information, which is typically in the form of qualitative data. This information can come through secondary research or comments from
primary research.
Once the trends information has been collected, structure data by group or theme. Typology is the strategy for qualitative data analysis to group findings into distinct
categories in order to identify data themes. This process allows the researcher to quickly consider the value of information by comparing with other information in the same “cluster” or
“line.”
5. Data Analysis
It is often necessary to develop multiple estimates using different approaches or sources, called triangulation, says the report. When
multiple sources or estimations triangulate, the confidence in a market estimate increases. If the approaches widely differ, additional research is required to reduce risk and is recommended to narrow
the range of market sizing estimates.
Common pitfalls or mistakes often start early on by not properly defining the market or gathering data from non-reputable sources. The market definition
should remain consistent throughout the data collection process and methodology should be based on market knowledge, not just demographics, says the report. Where possible, attempt to verify each
significant finding through multiple published source materials or primary research. By confirming findings, you are able to leverage the value of various information sources and increase confidence
in the final results.
For more information on sizing your market, or how to use market research to better understand your industry, says the report, download the free eBook here. By understanding, developing and implementing a market research strategy, you can set your organization on the journey to success, says the
report. In the eBook, learn how to effectively navigate this process by carefully evaluating each step to successfully utilizing market research to reach your organization's goals.